Statement no. 5 — Collorafi

OBSERVATIONS OF MR BERNARD COLLORAFI ON THE MINUTES OF THE EXPERT MEETING OF 11 MAY 1999 STATEMENT (*DIRE*) No. 5 QUESTION 1 On pages 1 and 2 of our statement no. 5 it is specified that Mr COLLORAFI devoted almost all of the dividends to his restaurants (financing and income tax) Had he kept them in current account he would not have been able to invest in ANTIBES NORD and ANTIBES OUEST. For the latter restaurant this was about to happen but the company MCDONALD'S had terminated the agreement a few days earlier. (supporting documents supplied) Mr COLLORAFI could not both invest in the restaurants and leave his money in current account for cash flow. We also recall that a current account has no influence on turnover and the profitability of a business. On page 7 of statement 5 we specify that if Mr COLLORAFI had divided his salary by two he would have been paid less than his deputy while managing 3 units and 120 people with the work and responsibilities that this demands and having invested 11 MF. Mr COLLORAFI's salary is the normal salary of a lessee-manager in the MCDONALD'S System. That is why the company MCDONALD'S wrote in its submissions that Mr COLLORAFI could have gone on benefiting from this situation. This confirms that the company MCDONALD'S approved Mr COLORAFI's remuneration which is quite legitimate because this remuneration is provided for in the forecast and the company MCDONALD'S took from the accounts of the companies SEBOL, B and O and LES PINS 43,000,000 francs in rents QUESTION 2 We have given the proof that the rent of ANTIBES NORD had been overvalued in relation to the investment costs and that the company MCDONALD'S made no discount to Mr COLLORAFI, on the contrary it was taking a margin of more than 9 million francs over the remaining term of the agreement. Page 4 of Statement no. 3. The amount of the fictitious discount was clearly insufficient to enable this restaurant to be profitable QUESTION No. 3 There is no error in the amounts nor any mixing with crew salaries. The high amount of the managers item in B and O in 1997 (944,760) is due to the cost of Mr RUIZ (about 450,000 francs) in order to retain the advantages of the employee whereas he was working across the 3 restaurants. In our Statement no. 5 pages 1, 2, 3, 4 we clearly specified the saving of costs achieved in SEBOL following the opening of QUICK and the transfers of costs from SEBOL to B and O and LES PINS, which are very significant. In summary the costs saved or spread over several restaurants concern: - All the administration costs defined in the P&L under headings 101, 102, 103 and apportioned pro rata to turnover - The salaries and charges of persons employed over several units, managers line: Mrs COLLORAFI Olga (upkeep): 250,000 annually Miss MOUTON Patricia (relations officer): 220,000 Mr RUIZ Manuel (supervisor) - The common expenses on local promotion and posters. Our Statement no. 5 page 1 sets out precisely the administration costs interpreted as such by the Company MCDONALD'S. The company MCDONALD'S clearly indicated that it considers a flat amount of 420,000 francs of administrative costs per additional restaurant and not that this is an average franchisee (that is impossible). The company MCDONALD'S allocated in addition to the administrative costs of SEBOL which it knew perfectly well a flat sum of 420,000 francs for each of the 2 other restaurants. That is a total of 2,500,000 francs which were not reached. (One need only refer to the balance sheets of CANNES and other companies of the group) We made the calculation at the meeting of 11 May and the administrative costs excluding the lessee-manager's salary amount to 1,000,000 francs, the company MCDONALD'S having taken over the same persons who worked with Mr COLLORAFI. The visit reports of the company MCDONALD'S describe Mr COLLORAFI as a perfect manager of MCDONALD'S restaurants, this being understood as much on the operational as on the administrative and accounting level and it moreover makes no remark on all of the administrative costs, knowing perfectly well the cost of this item. We supplied as an annex to our Statement no. 5 the table of the accounts at 30 June 1997. The successive impacts suffered by SEBOL and then by B and O disorganised the management of these restaurants One cannot from one day to the next dismiss the staff, cancel maintenance contracts, suppress promotion or poster operations; it takes a certain time to regularise all this. All the more so as in its letters addressed to the Franchisees the company MCDONALD'S assured them that it paid very particular attention to impacts. That does not prevent it, when SEBOL has just lost half of its turnover and B and O is achieving only 65% of the forecast, from opening two other restaurants in the same catchment area. QUESTION 4 Mr COLLORAFI has shown that his management was perfect and constantly approved by the company MCDONALD'S. QUESTION 5 Mr COLLORAFI has always said and maintains that if VALLAURIS had been allocated to him this would have enabled him to achieve additional savings referred to in question 3. That is to say about 3 MF spread over four units instead of three, which gives on average 750 kF instead of 1,000 kF, that is a saving per site of 250 kF. The Experts have noted that the results of VALLAURIS are catastrophic: only 50% of achievement and lower than those of Antibes Ouest, well below the forecasts with 75% of achievement. These two restaurants have affected the turnover of the first ones and prevent any progression at present (+ 1% in 1999) that is to say the same figures as the previous years. Mr COLLORAFI was therefore quite right to warn the Management of MCDONALD'S of the impacts of the forthcoming openings of Antibes Ouest and i ..-' Vallauris and was quite right to say that these openings were taking place in his catchment area. QUESTION 6 The financing conditions of ANTIBES OUEST were met and Mr COLLORAFI was preparing to finance this restaurant in full when the company MCDONALD'S terminated the agreement (all the supporting documents were supplied) Mr COLLORAFI has always specified and maintains that the opening of Antibes Ouest impacted the 2 restaurants of the Shopping Centre and its progression comes about by nibbling away at the turnover of these 2 first restaurants. It is obvious, given the turnover achieved by the restaurants, that Antibes Ouest and Vallauris are indeed in the catchment area of Antibes 1 and Antibes Nord and it would have been entirely logical that the company MCDONALD'S allocate both of them to Mr COLLORAFI who has always honoured his commitments. If it is not in itself a poisoned gift it has poisoned the life of the 2 other restaurants which are making only losses, the turnover figures are not reached. Mr COLLORAFI never ceased to warn the Management of MCDONALD'S about the situation of the Antibes 1 and Antibes Nord restaurants, backed by the handing over of the accounting documents regularly. That is why this restaurant which is not viable in itself finds a balance within a group of restaurants and as a result brings nothing to the first 2 (apart from the transfer of apportioned costs) and therefore did not constitute a chance for Mr COLLORAFI to get out of difficulty. The following tables give the month-by-month detail of the impacts on the restaurants of the Shopping Centre and Antibes Nord sovessibit COMPARISON OF TURNOVER COMPANY SEBOL 1 171330 F 975 67L CHANGE - 35.95% -40.12% -30% From the opening of Antibes Nord on 9 October 1996 the Shopping Centre restaurant shows an impact of 40%. LABEL January February marS April May juits quilles a00t epierabre xrobre noverobro December TOTAL COMPARISON OF TURNOVER COMPANY SEBOL 1517898F 1 523 $23 18 305 826 Г 908 249 F CHANGE - 40.16% - 39% - 45% - 38.28% - 45.09% - 38.59% - 41% -41.17% - 22.19% - 15.10% - 5.2% - 36.39% This fall continues and worsens in May 1997 with the opening of Antibes Ouest and Vallauris At that point from one month to the next the fall is 15%. In October 1997 the impact of Antibes Nord has disappeared but the impact of the 2 other restaurants remains and instead of progressing the Shopping Centre continues to fall by 15% on average. rontre: k1.33 lg: LABEL January Itvrier mais April mật June 9 days in June July SOûl septombre ociobre noverabre December COMPARISON OF TURNOVER COMPANY SEBOL 208249 F 91| 414 829 447 F CHANGE - 8.67% - 13.92% • 9.5% - 10.98% - 1.67% + 3.73% The fall from one month to the next is very significant in this table. In May, at the opening of Antibes Ouest and Vallauris, the restaurant loses 20%, which is confirmed after October 1997 at the end of the impact of Antibes Nord and continues at the same pace until May 1998 when there is no longer any impact. reidoryy LABEL oxitobre November décerabre COMTARAISON DES CHIFFRES D'AFFAIRES COMPANY B & O 1 115684 F 1039783 F CHANGE - 6.8% - 18.3% - 7.26% This table shows an average impact of 10% at the end of 1997, an impact due to the openings of Antibes Ouest and Vallauris. LABEL lanvier February inars avil May S days in June Juiller sepiembre October November December 1997 COMPARISON OF TURNOVER COMPANY B & O 1 108 852 F CHANGE • 6.55% • 10.59% - 15.93% + 4.5% + 13.60 Ж Whereas this restaurant was not achieving, and by far, the forecast turnover, the opening in May of Antibes Ouest and Vallauris led to a fall of 20% which continued and remained around 10% in 1998 until May when the impact ends. Despite a very insufficient turnover in the first months (about 1,250 kF monthly) one could have expected a progression of 10%, which would have given a turnover of 16 MF annually, certainly better than the 13.5 MF. Unfortunately with the successive openings this restaurant, after having fallen, stagnates to the benefit of Antibes Ouest and Vallauris which nibble away at its turnover, these restaurants being located in the same catchment area. QUESTION 7 The average administrative costs are not 420,000 francs per restaurant. (that is impossible) That would mean that if Mr COLLORAFI had had only a single restaurant he could not have taken any salary and would have had to pay in sums regularly to ensure the management of the restaurant. Indeed the management of a single unit requires at least: - offices 1 accountant - telephone costs - representation costs (identical for 1 site or several). - costs of supplies, postage, insurance, photocopier, maintenance contract for software and IT. - vehicle costs. The company MCDONALD'S means by 420 kF the administration costs excluding the salary of the lessee-manager. That is the reason why it determined this amount in the forecasts for Antibes Nord and Antibes Ouest, Mr COLLORAFI having his salary already included in the administration costs of Antibes 1. The company MCDONALD'S, in view of the administrative costs already incurred by the company SEBOL, added a flat amount of 420,000 francs for B and O and 420,000 francs for LES PINS. The document supplied by the company MCDONALD'S giving the average of the PAC is false because we have shown that: • This table is constituted from IT data whose cumulative totals are erroneous (the software is not exclusive to Mr COLLORAFI but concerns almost all of the Franchisees when one knows that the development of a software costs between 2 and 3 million francs) • The analysis of the accounting documents of VALLAURIS which are the only official documents shows that this restaurant like all the others moreover is 4% below the average assumed by the erroneous table supplied by the company MCDONALD'S Not only did the company MCDONALD'S benefit from a reduction in the cost of materials and from the increase in prices but in its comparison it i ci..s deliberately forgets to take into account the 1.5% reduction granted to restaurants during the first year of opening. Furthermore it allocates staff to administration costs whereas the P&L breakdown supplied by the company MCDONALD'S indicates that this staff is included in the PAC. It benefited from promotion and poster expenses incurred by the companies of Mr COLLORAFI which are not included in its PAC. It does not account for the salary of Mr RUV/. Manuel, Supervisor transferred to PARIS, and replaced by Mr MARTINEAU Gilles, Supervisor in NICE. Despite this the PAC rates of Mr COLLORAFI are the same as those of MCDONALD'S. This leads us to note that Mr COLLORAFI had a much better result than the company MCDONALD'S and as the latter is very far from the PAC table which it supplied as well as from the SEPT Expert report, one does not see how Mr COLLORAFI who was according to the company MCDONALD'S an exceptional Franchisee could have done even better. The company MCDONALD'S always congratulated Mr COLLORAFI on his results including the PAC, and had there been a problem it would not have failed to point it out immediately to Mr COLLORAFI, fulfilling its duty of advice and paid for it as the Court specifies. QUESTION 8 We detailed the administration costs for 1998 in our Statement no. 3 page 14 and despite a reduction in the salary of Mr COLLORAFI of 25% the whole of the 3 restaurants would have had a loss of more than 2 million francs. We recall here that the company MCDONALD'S never made the slightest remark on the administration costs and for good reason the company MCDONALD'S knows the expenses necessary to manage the restaurants Had there been an overrun of the administration costs the company MCDONALD'S would not have failed to point it out to Mr COLLORAFI, we recall that the Fra telistes mois les a sone yes au siege par le re comile Régional et No remark was ever made. QUESTION 9 We did indeed distinguish between the administration costs calculated by Mr GANDUR Expert, and the administration costs as interpreted by the company MCDONALD'S which comprise only lines 101, 102, 103 of the P&L The essential problem is indeed turnover, for which the company MCDONALD'S defined the forecast on the basis of the rents themselves calculated from the investments Mr COLLORAFI was right to wish to take on lease-management (*location-gérance*) the restaurants of Antibes Ouest and Vallauris which would have enabled him to spread costs. It is quite obvious that all of Mr COLLORAFI's efforts to manage these restaurants as well as possible, as the company MCDONALD'S stresses in its reports, were not enough to make them profitable, the turnover figures being very insufficient to reach the break-even points. The company MCDONALD'S produced its accounting documents as well as those of Vallauris. In our Statement no. 3 page 13 we made the calculations of the management of the company MCDONALD'S: A total loss over the year of 3,253,000 francs would be reached And if one looks at Vallauris, this restaurant benefited from a global allocation from the company MCDONALD'S of 1,600,000 francs to obtain a result of 0 whereas with the same turnover in 1997 the Antibes Ouest restaurant of Mr COLJ ORAN benefited from no aid. EXPERT REPORT DOCUMENTS We submitted a Statement no. 5 on 3 June 1999 a table showing the breakdown of fixed costs at 30 June 1997. The explanation and the detail of the manager item. There is no average of administrative costs, that is impossible; on the other hand one realises that, with each unit added, the overall amount of these costs increases less and less. Had Mr COLLORAFI obtained Vallauris he would have increased all of his administrative costs by about 60,000 francs annually, that is the salary of a part-time assistant, since moreover he had all the infrastructure to ensure the essentials. We explained in our Statement no. 5 pages 2, 3 and 4 the transfers of costs linked to several units Mr COLLORAFI had a salary of 600,000 francs annually since 1991, the normal salary of a Business Manager who manages 120 people and who has invested, and practically the same salary as most Franchisees (however there is no rule). Franchisees come from all backgrounds, and have experience of managing profit centres The salaries paid in the world of work to senior executives are known. At the opening of Antibes Nord he kept this salary and increased it by 10,000 francs monthly from the opening of the 3rd restaurant. We also specify that Mr COLLORAFI had a contractual obligation of exclusivity and could not carry on another professional activity The company MCDONALD'S, knowing Mr COLLORAFI's situation well, for 10 years during which he regularly submitted his accounts, could not accept that Mr COLLORAFI reduce his salary, since he could not seek elsewhere any compensation. As regards the management of Mr COLLORAFI, proof has been given with accounting documents in support that his management was irreproachable and much better than that of the company MCDONALD'S. To complete our information to the Experts we communicate to them some summaries of balance sheets of restaurants having appreciably the same turnover as those of Mr COLLORAFI. i ATLAS 400 - TPE. NIC. NIC 109 : 01939643 = 19/81/99.21:01:50_- PAGE 003/004 =====. ======== les rAcenciennEs (seg) ₫===0======= =======‡======= KEY FIGURES IN KFRF HOM : RAUFNALA MAC DONALD'S SIREN: 402241624 Turnover : 1996 Exports Operating result : 1996 ============= KEY FIGURES IN KFRF NAME SIKEN: RAUENALA MAC DONALD'S 46===.. ======= = Current result Net result Cash position ATLAS 100 - IPC NIC.NIC10? - 0193964Q - 19/01/99 20:52:13- PAGE 003/004 |===:::[[$============ KEY FIGURES IN KFRE NAME SA GRAND OMER MC DOMALD'S SIREM: 387454333 ================ CARCADONDE. 11 Turnover Exports Operating result ********========:=====≥=°= =[==== = == KEY FIGURES IN KFRF SA GRAND OMER MC DONALD'S Current result Net result Cash position ALLAS JUB - TFC.NIC NIC11O - 01899312 - 18/01/99 21 22:01 - PAGE 803/004 *=.... ====== ============= ========== GRENOBLE GRAnO Place KEY FIGURES IN KFRF NAME SARL AMAUDRIC SIREN: Turnover Exports Operating result ==========<<***=*=== • 0 p ======== == KEY FIGURES IN KFRF HOM SIREN: SARL AMAUDRIC Current result Net result Cash position ATLAS 400 - IPC. NIC.NIC103 - 18/01/99 19:50:18 - PAGE 003/004 ====== = = ======_==== VALENCE V.Hujo. KEY FIGURES IN KPRF NAME : VALENCE VICTOR HUGO SIREN: 397459850 Turnover Exports Operating result ==== ₫₫=== : =====*:=≥======ęr KEY FIGURES IN KFRF NAME : VALENCE VICTOR HUGO SIREN: 397459850 TAREATEY Current result Net result Cash position ATLAS 100 - TPC. NIC. MICIO2 "!.." - 01847303 - 18/01/9? 18:21:51 - PRGE 003/093 L 0 OP == = =1 = = : KEY FIGURES IN KERP NAME : ARCHES ESTEREI MCDONALD'S SIREN: 378495592 Turnover ====== MANDE LiEU •===== Exports Ros. d'axploitation =======•======:===== L O ° =========== 44===== z ===-============== : ARCHES ESTEREL MCDONALD'E SIREN: Current result. Net result Cash position RILAS 400 - TPC. NIC. NIC107 : 01939642 - 19/01/99 21:00:18 - PAGE 083/004 AREEniENiL 9s ===== KEY FIGURES IN KFRF NAME : IMDOSEINE MCDONALD'S SIREN: Turnover Exports Ras. d'exploitation = ===== #=.. L |========== ==========: KEY FIGURES IN KFAF HOM : INDOSEINE MCDONALD'S SIREN: Current result Net result Cash position